NS&I kills off top fixed-rate bond paying 6.2 per cent after just five weeks – are more rates about to fall?
NS&I is eliminating top fixed rate bonds yielding 6.2 per cent interest after just five weeks – are more rates about to fall?
- NS&I is withdrawing its unbeaten 6.2 percent guaranteed growth bonds from sale
- But experts say this is bad news for two reasons, as interest rates are likely to fall even more
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National Savings & Investments (NS&I) has withdrawn its best ever savings bond, which paid 6.2 per cent – and experts say this could mean interest rates will fall further.
NS&I today announced it is withdrawing its one-year guaranteed growth bonds at 6.2 per cent, after launching the deal just over a month ago.
The unbeatable deal topped the best buy table for weeks, with a nearest interest rate of 6.11 percent, from Union Bank of India, Oxbury and Smart Save.
NS&I is also withdrawing its one-year guaranteed income bonds, which also paid 6.2 percent, with monthly interest payments.
Savers flocked to the NS&I deals, with 225,000 registrations.
Best buy: NS&I’s unbeatable savings interest topped the best buy rankings for over a month
NS&I chief executive Dax Harkins said: ‘This summer’s new one-year fixed rate bonds have been a great success. I am pleased that we were able to keep them on offer for more than five weeks, allowing more than 225,000 savers to benefit from the highest interest rates we have ever offered on these products.’
Both bonds were withdrawn from sale this morning, but NS&I says it will honor postal applications ‘for a reasonable period’.
What next with bond yields?
Experts say NS&I’s withdrawal is bad news for competition, and fares are now likely to fall.
The 6.2 percent interest rate was not only the best in the market for one-year bonds, but also encouraged other banks to raise their rates as well.
Anna Bowes, founder of savings expert Savings Champion, said: ‘All the top five best-bought bonds were paying 6 per cent until NS&I launched that rate. Now that that bond has been withdrawn, I’m afraid I expect competition in one-year best buys to decrease again.”
Not only this, many savings deals take into account the rises and falls of the Bank of England’s base rate.
This currently stands at 5.25 percent, after the Bank froze rates in its decision last month.
In addition, many of the best fixed interest rates are priced on the assumption that the base rate would rise last month.
Since this has not happened, it is likely that fixed rate bond yields will fall.
Bowes added: “These bonds are priced on the expectation that the base rate will go higher than it has gone anyway. I was surprised when NS&I launched that bond at such a high pace, and it seemed to provide some extra competition.”
Why was the NS&I percentage of 6.2 percent so high?
Many savings experts raised their eyebrows when NS&I launched its best purchase interest rate of 6.2 percent.
Normally, NS&I prices its deals very carefully, and they almost never pay a competitive rate.
This is happening because the state savings company must strike a balance between its main goal – raising money for the Treasury – and not eliminating competition from private banks.
The reason for the unusually good rate of 6.2 per cent was to help NS&I meet the Treasury’s targets for the amount of cash it needs to raise by the 2023/24 year.